CHAN FAT CHU RAYMOND AND ANOTHER v. HKSAR

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J U D G M E N T

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Mr Justice Bokhary PJ :

1.  My thinking in these appeals fluctuated during the hearing; but having now had the benefit of reading the judgment prepared by Lord Woolf NPJ, I have come to the settled conclusion that both appeals must be dismissed, and I would dismiss them for the reasons which he gives.

Mr Justice Chan PJ :

2.  I agree with the judgment of Lord Woolf NPJ.

Mr Justice Ribeiro PJ :

3.  I agree with the judgment of Lord Woolf NPJ.

Sir Noel Power NPJ :

4.  I agree with the judgment of Lord Woolf NPJ.

Lord Woolf NPJ :

5.  The 1^st and 2^nd appellants were convicted by Deputy District Judge Casewell on 19 January 2007 of an offence of conspiracy to defraud, contrary to Common Law and punishable under s.159C(6) of the Crimes Ordinance, Cap. 200.  They were sentenced in the case of the 1^st appellant to 4 years and 10 months imprisonment and in the case of the 2^nd appellant to 4 years imprisonment.

The Issues

6.  The issues that the appeal raises can be expressed in different ways but in the end there is only one principal issue; on the evidence that has been placed before us is it established to the required standard of proof that the appellants or either of them were deprived of a fair trial because of the manner in which they were represented by their legal teams (or either of them) at or in connection with the trial.  I refer to both legal teams because while they are now represented by the same team as in the Court of Appeal, at the trial they were represented by a different team.

7.  Separate issues that I could have considered, but will not do so because they are subsumed by the principal issue that I have identified are:

(a) Should the Court of Appeal have rejected the fresh evidence on which the appellants rely because it does not comply with the requirements that govern the admissibility of fresh evidence; that is the evidence that was not before the trial judge.  This point was not taken before the Court of Appeal who considered the evidence.  It could be described as a technical point but this is not to recognize that the point plays an important part in ensuring the proper administration of justice by helping to ensure that available evidence is given at the right time, which is at the trial.  The point is relied on by Mr McWalters, SC, Deputy Director of Public Prosecutions.  This is on the grounds that the evidence is simply not credible and therefore the Court of Appeal must be assumed to have heard the evidence de bene esse and then rejected it.  The judgment in the Court of Appeal does not suggest this is what happened and the submission is strongly contested to by Mr Alun Jones QC (see his Supplemental Case).  The evidence is highly relevant to the principal issue and, in determining that issue, we will need to assess its creditability but not for the purpose of determining whether it is admissible because this Court only acts on evidence that is at least creditable.  All evidence is of different weight and when it comes to reaching our decision we will only attach to the evidence the weight its creditability justifies.

(b) To what extent was it open to Mr Alun Jones who represented the appellants in the Court of Appeal and this Court to contend that his clients were deprived of the means of contesting the offence on which they stood trial because they were not advised to give evidence and so did not do so.  Such evidence would be essential if they wished to contend that they were acting under a claim of right and therefore were not acting dishonestly in being a party to a conspiracy.  The issue can be approached as a question of law or as a question of fact. 

(c) Whether there exists any evidence capable of establishing a claim of right is a question of law.  Whether the evidence establishes the claim depends on the facts.  The question of law was not argued before us so I do not decide the case on my present view of the law.  It suffices for me to say that, as at present instructed on the law, I would be inclined to say, without deciding the point, that I am very doubtful whether there could be, in the circumstances here, a claim of right.  This is because the appellants are seeking to say they were entitled dishonestly to create a fictitious loan in order to receive payment of the amount they now contend is repayable under what might be a genuine loan.

(d) To say that a claim of right is able to be extended this far is questionable but I will only examine the issue when considering the facts on which the appellants rely for saying they have been treated unfairly for two reasons.  Firstly, because their original counsel can hardly be said to be negligent if he does not advise them about what lawyers would colloquially describe as a bad or hopeless point on the facts.  Secondly, because I do not accept the appellants had any prospect of persuading a judge on the evidence available to us that they genuinely believed they could obtain HK$100 million in value from a public company in repayment of a fictitious loan because two years earlier, they had made what they say now was or might be a genuine loan to the company of a greater amount.  The question that they have not answered in any manner which carries conviction is, why create a fictitious loan to be repaid by a false and circuitous series of bogus transactions if you consider you have a perfectly genuine loan which you are entitled to have repaid?  Of course now having been advised that this is what they could do, they have seized on this “defence” but I cannot help feeling it is possible that they found the advice, initially, as surprising as I would.   

The Need for Careful Investigation

8.  One of the most important aspects of the rule of law is that a defendant should have the benefit of competent counsel when seeking to defend themselves against criminal charges of any substance.  It is the responsibility of an effective justice system to ensure that such assistance is available as is made clear by the Hong Kong Bill of Rights.  Unfortunately, in some trials in Hong Kong as elsewhere, a defendant does not have the benefit of that assistance.  It can be because the defendant’s lawyer is incompetent or it can be because in the particular case a lawyer of the highest reputation falls below the required standard.  The reason does not matter.  What does matter are the consequences of the failure.  It is sufficient that it can be shown that a defendant has not or may not have received a fair trial.  If there is a case where a defendant alleges that this is what has happened, the allegation must be properly investigated and if, as a result of the investigation, the appellate court considers that the defendant has not or may not have had a fair trial, the failure must be corrected by setting aside a conviction or acquitting the defendant. 

9.  It is, of course, appreciated by the appellate courts that it is very easy for a defendant who has been perfectly satisfactorily represented to make allegations against the lawyers who had the responsibility for the conduct of the defence which are without adequate foundation.  While lawyers are capable of falling below the required standard on a particular occasion, it is all too easy for false allegations to be made by a defendant aggrieved by a conviction although what happened does not mean that the conviction was obtained as a result of unfairness. 

The Procedure

10.  In investigating allegations of this nature, the normal appellate court process for establishing whether the conviction was obtained wrongly has to be modified.  The initial responsibility is on the appellants to place before the court material on which the court can conclude that an injustice has occurred which justifies its intervention but the court can be proactive in obtaining the evidence.  This is because there has to be shown that there has been a grave and substantial injustice to a defendant (in the case of the Court of Final Appeal within the terms of s.32 of the Hong Kong Court of Final Appeal Ordinance, Cap. 484) before it can be said that the defendant did not have a fair trial.  This requires the manner of the conduct of the appellant’s defence by his lawyers to have been seriously defective.  The process is one which requires the cooperation of both the prosecution and the defence lawyers to ensure the investigation is thorough.  The prosecution cannot, however, with propriety, ascertain from the defendant lawyers information as to how they conducted the defence or why they took or did not take particular action.  For the prosecution to investigate, this would make an undue inroad into the normal strict rules which safeguard the need for confidentiality between a lawyer and his client.  This means that it is essential that the appellants’ lawyers, while sensitive to their clients’ needs, take care to ensure that the court is not being misled.  For this reason, a practice has been established both in Hong Kong and other jurisdictions whereby the court requires the lawyers against whom the allegations have been made being informed of the allegations by the court so as to enable them to make a response to what is alleged against them.  To further this process, the appellant, so far as necessary, is required to waive his right to professional privilege.  This is what happened here.  Usually, this results in the appellate court being in a position to decide what other steps are appropriate including, for example, cross-examination.  It is to be noted, however, that it is not sufficient for an appellant to show that, in a particular aspect of the proceedings, the lawyer has fallen below the required standard.  It must also be shown that what has happened has resulted in unfairness or injustice.  Achieving this may in a minority of situations require oral evidence.  It also requires the court to make allowance for the problems that can arise for the lawyers in trying to balance the continuing obligation which they owe to their clients with their obligation to the court.  The process, as a whole, requires considerable sensitivity by all involved.  Fortunately, there are now a number of reported cases which demonstrate how this can be achieved in many of the different situations that can arise.  However, no two cases are exactly the same and the court must do its best to devise the procedure most suited to achieving justice in any particular case with the assistance of the parties and their lawyers; remembering that ultimately it is for the appellant to substantiate his grounds of appeal.

The background facts

11.  The 1^st and 2^nd appellants are two brothers.  The 1^st appellant is the elder brother.  He was the chairman and the 2^nd appellant was the deputy chairman of a public company, RNA Holdings Limited (“RNA”), which was listed on the Hong Kong Stock Exchange on 2 December 1996.  RNA had the wholly owned subsidiaries, Hing Fung Goldsmith and Refinery Limited (“Hing Fung”) and Giant Dragon Limited (“Giant Dragon”).  In addition to the appellants, there were three other defendants, D3, executive director and authorized signatory of RNA and Hing Fung, and D4, the director and shareholder of Kings Jewellery and D5, the RNA’s secretary.  Andie Lo was the financial controller of RNA and the 1^st prosecution witness (“PW1”).  He testified under immunity from prosecution.  The 2^nd prosecution witness was Tse Ka-yee (“PW2”) who gave important prosecution evidence as to the 1^st appellant’s involvement in the actions which resulted in the appellants being charged.

12.  The prosecution was the result of a series of transactions which took place between the end of December 2000 and September 2001.  It is accepted on behalf of the appellants that these transactions were dishonest and bogus and that they created the false impression that RNA was indebted to the appellants to the extent of HK$100 million.  This was the result of a series of circular flow of funds which did not in fact result in any one suffering any net loss or gain but were recorded in the books of RNA as producing a loan from two appellants of HK$100 million.  The transactions can be summarized as follows on the prosecution’s evidence:

“12. A number of intermediary shell companies including five jewellery companies and three finance companies, were set up by PW2 under the 1^st appellant’s instruction between December 2000 and January 2001 and, between 28^th December 2000 and 3^rd January 2001, the 1^st Appellant signed and approved, on behalf of Giant Dragon, five credit applications by those five jewellery companies purportedly lending to them a total sum of HK$100 million.

13. There was, in fact, no purpose for RNA, through Giant Dragon, to make a fund totalling HK$100 million available to these five newly-incorporated jewellery companies who themselves had no business, and who existed for no other purpose than to act as a conduit for the cash in the fund flow exercise.  In fact, those five credit applications were dated between 28 December 2000 and 3 January 2001, well before the incorporation of the five jewellery companies which were not incorporated until 10 January 2001.

14. The funds cycles were designed to create the appearance that the 1^st Appellant was the lender of monies to RNA, purportedly under the Shareholders Loan Agreement, who then apparently lent these monies to the jewellery companies who immediately paid the same monies to finance companies controlled by PW2 acting under the 1^st Appellant’s instructions.  This cycle was repeated from two to five times on five different days involving five different jewellery companies and a number of finance companies.

15. In this way a total of HK$100 million was deposited from the 1^st Appellant’s bank account at HSBC into RNA’s bank account, also at HSBC, on 20 occasions between 3^rd-8^th of February 2002.”

13.  The particulars of the charge on which the appellants were convicted were based on these events and are as follows:

“During the period of the 28^th day of December 2000 and the 18^th day of September 2001, in Hong Kong, conspired together and with LO Chi-kin, Andie and other persons unknown to defraud RNA Holdings Limited, the creditors and shareholders of the said RNA Holdings Limited by dishonestly:

(i) falsely representing that a total $100,000,000.00 Hong Kong currency was lent to the said RNA Holding[s] Limited by CHAN Fat-chu, Raymond and CHAN Fat-leung, Alexander [the appellants];

(ii) causing and permitting accounting entries to be made to the effect that $100,000,000.00 Hong Kong currency was lent to the said RNA Holdings Limited by CHAN Fat-chu, Raymond and CHAN Fat-leung, Alexander [the appellants];

(iii) causing and permitting a payment of $55,000,000.00 Hong Kong currency to be made by the said RNA Holdings Limited by CHAN Fat-chu, Raymond and CHAN Fat-leung, Alexander [the appellants];

(iv) causing and permitting accounting entries to be made to the effect that a repayment of debt of $55,000,000.00 Hong Kong currency was made by the said RNA Holdings Limited to CHAN Fat-chu, Raymond and CHAN Fat-leung, Alexander [the appellants];

(v) causing and permitting the issuance of $450,000,000.00 ordinary shares of RNA Holdings Limited to CHAN Fat-chu, Raymond and CHAN Fat-leung, Alexander, Lucky Strike Investment Limited and Classic Charter Limited [the appellants];

(vi) causing and permitting accounting entries to be made to the effect that the issuance of the said ordinary shares was for the purpose of a repayment of debt.”

14.  That the loan which is referred to in those particulars was fictional was accepted by Mr Alun Jones on behalf of the appellants both in the Court of Appeal and this Court.  That non-existent loan has to be distinguished from a loan which the appellants contend they made in April 1999, the only available documentary evidence of which is an entry of 30 April 1999 in a copy of the bank account of RNA’s subsidiary, Hing Fung of a credit of HK$111 million.  There is also evidence of a loan between the appellants and Lucky Strike, a company connected with an individual called Mr George Chan (“GC”) who the 1^st appellant has described as “a loan shark”.  The loan was for HK$88 million.

15.  While both the appellants were represented in the Court of Appeal and this Court by Mr Alun Jones and Mr Clive Grossman, SC and their respective junior counsel, Ms Alice Lee for the 1^st appellant and Mr David Boyton for the 2^nd appellant, in the District Court, the 1^st appellant was represented by Mr Ching Y. Wong, SC, Mr Jon Wong and the 2^nd appellant by Mr Joseph C. Tse, SC and his junior Mr Selwyn Yu.  It is the appellants’ case that while the 2^nd appellant was separately represented before the District Court, it was Mr Wong who was the most senior counsel who played the dominant role both in giving advice and in representing the appellants in the District Court.  It is the alleged negligence of Mr Wong which was relied upon in the Court of Appeal and this Court as justifying these courts intervening.  

16.  In a very careful and clear judgment, Deputy District Judge Casewell gave his reasons for convicting the 1^st appellant.  He explained how the case for the appellants had primarily been advanced before him.  He says:

“33. The 1st defendant’s case was advanced by cross-examination and by submission.  In summary, the 1st defendant contended that the funds circulation schemes were a mechanism whereby an earlier loan made to Hing Fong [Fung] by himself and his brother was being repaid.  In 1999, it was said that the 1st and 2nd defendants had approached a George Chan for a loan.  He had agreed and made a loan to them, the 1st and 2nd defendants, on 23 April 1999 of $88 million via his BVI company, Lucky Strike.  On 30 April 1999, the 1st and 2nd defendants had lent Hing Fong [Fung] a sum of $111 million in order to give RNA and Hing Fong [Fung], sufficient funds for purchasing gold from Korea and Malaysia.  The money was paid into Hing Fong [Fung] on 30 April, as evidenced by Hing Fong’s [Fung’s] bank statement.

34. In mid-January 2001, RNA required a further loan for that $30 million for buying gold – this was described as a bridging loan.  The 1st defendant and PW1 then approached George Chan for a loan.  Subsequent to this meeting, the 1st prosecution witness and George Chan met privately without the 1st defendant being present.  During this meeting, George Chan agreed to lend $30 million to RNA on condition that the $88 million together with interest, in total $100 million, was to be repaid to him, but RNA’s accountant IBA (I think it is called Fubon Bank now) was to be used for the repayment; that the 1st and 2nd defendants were not to be signatories to RNA’s account but would be substituted by the 1st prosecution witness, Sit Chung-see (?) and the 3rd defendant, and the other directors of RNA.  Following this meeting, it was the 1st prosecution witness who devised the scheme and that scheme led to the creation and signing of the loan deed dated 12 February 2001 whereby the 100 million debt to George Chan could be repaid.  On 13 February 2001, named on the scheme for repayment, George Chan via his company, All Success, signed the deed to lend $30 million to RNA.

35. The payment of $55 million to the 1st defendant was immediately transferred to Sun Harvest, one of George Chan’s companies, and the later payment of $45 million of shares to the 1stand 2nd defendants, $30 million of which went to Lucky Strike and Classic Charter, both George Chan companies, and were therefore repayments in respect of the $111 million loan to RNA and to repay George Chan the $100 million owed to him.

36. By the agreed evidence and the documentary evidence, the 1st defendant conceded the existence and operation of the fund recycling schemes and his clear participation can be seen in it from the documentary evidence, but he distanced himself from it by suggesting that it was the 1st prosecution witness that was the creative genius behind the scheme.  However, in his case, the 1st defendant submitted the participation within the fund cycle scheme exercises was insufficient to establish on his part a conspiracy to defraud.  Therefore, although the fund’s cycle appeared to use unlawful means, the overall result of the scheme was a lawful objective, namely the repaying of a debt owed by RNA to himself and his brother.  This is a defence that would be equally applicable to the 2nd defendant and was adopted by him and in fact would apply to all the defendants.

37. In connection with this submission, the 1st defendant referred to section 159E of the Cap. 200, which they contended resulted in the abolition of the old common law definition of a conspiracy, namely of it being an agreement to do an unlawful act or to do a lawful act by unlawful means, thus the operation of the fund recycling scheme could not of itself be on this submission a conspiracy to defraud.  I will look at this in some more detail later, however, it does on the face of it appear to ignore the interests of the other shareholders and creditors of the company whose financial interests must have been put at risk by the scheme which enabled the conspirators to use their positions to extract their money in advance of any other monies owed to other creditors of RNA.”

17.  Having reviewed the evidence before him including the fact that all the defendants had good characters, the trial judge summarized his conclusions for finding the 1^st appellant guilty in these terms:

“77. In assessing the questions of the defendant’s dishonest intent, I must proceed on the basis of the facts established in the evidence.  The operation of this scheme took $100 million of the company’s assets out of it with a cavalier and dishonest regard for the interests of other creditors and shareholders and so there is no evidential basis on which the defendants could justify this act, and in my view it was clearly dishonest both by the standards of ordinary people and also something the defendant himself must have realised.  I would say in passing, even if such a debt had been evidentially established, a defendant or defence relying on this defence could not entertain the belief they had the right to deprive the RNA of the funds for the reason that there would be no need to indulge in this subterfuge if one could simply just present the loan and request repayment in accordance with its terms.  As I have said, no such obligation of repayment or terms of repayment was ever established in the evidence in this case, and the means adopted by the 1st defendant and the conspirators provide clear evidence of dishonesty.

78. I found that the inference that this scheme as carried out was carried out with a dishonest intent is overwhelming and I do not believe that the evidence allows for any other conclusion.  It is clear, as I said, the defendant was intimately involved in all aspects of the conspiracy as pleaded by the prosecution and it was done with the necessary intent to defraud and also done dishonestly.  The prosecution must have proved the defendant was part of the agreement pleaded in the conspiracy charge and accordingly I must convict the 1st defendant on that charge.”

18.  Mr Alun Jones in his submissions before us does not criticize these conclusions.  On the contrary, an important part of his argument before us is that the judge’s conclusions were inevitable if the 1^st appellant was not advised to give evidence, and did not do so in support of his claim of right.

19.  To support his contention that he was deprived of a fair trial, the 1^st appellant filed an affirmation that exhibited a statement of evidence.  In it, he contends that Mr Wong told him even if he did not give evidence, he would have a good defence “by means of two alternative approaches; what he called the direct approach and indirect or negative approach”.  He accepts that Mr Wong asked him to provide further evidence as to the loan of $111 million in April 1999 but he says he could not do this as this had been arranged by PW1 and he could no longer recall clearly how this had been done.  A further difficulty was the fact that when he was preparing for trial at the end of 2006, RNA was in the course of being wound up with the result that all company documents were in the possession of the provisional liquidator.  He was therefore not in a position to pinpoint the “payment flow” of the loan of $111 million.  He says, however, that Mr Wong was confident that the documents which were available were corroborative of his version of the circumstances of the loan to RNA.  The documents he was able to produce were a loan agreement of the 23 April 1999 for $88 million between Lucky Strike Investment Limited, one of GC’s companies dated 23 April 1999, a floating charge executed by Regent Investment Company Limited and Admiralty Investment Company Limited in favour of Lucky Strike dated 23 April 1999 together with relevant correspondence, a personal guarantee executed by both appellants dated 23 April 1999, the bank statement showing the deposit of the $111 million on 30 April 1999, a supplemental loan agreement dated 13 August 1999 in respect of the $88 million loan and the loan agreement for $30 million signed by RNA and All Success International Limited dated 13 February 2001.

20.  The 1^st appellant adds that both Mr Wong and junior counsel said they intended to present an argument which was sound and which they were confident would succeed.  This was based on the abolition of the common law offence of conspiracy which meant that the use of illegal means to achieve a lawful objective was no longer a criminal conspiracy.  He says Mr Wong was quite confident that his legal argument together with the documentary evidence which was available was sufficient to secure an acquittal.  Furthermore, during the trial he was informed that the case was going well and Mr Wong showed confidence in winning the case.  He said that he was advised that his giving evidence would not assist the case, especially as he could not at the time provide a clear picture of the fund flow of $111 million into RNA.  He says he and Mr Tony Wan (the instructing solicitor) had been friends over a number of years and he was told that he was not an eloquent person and not very well organized in his speech and therefore it would be better that he did not give evidence if it was not necessary.  He accepts that he understood that ultimately the question of giving evidence was for his decision but he felt comfortable following the advice as to how his defence should be presented.  It was only after his conviction when he received fresh advice that he appreciated that he had suffered an injustice.  He was then told that Mr Wong’s argument was not correct in law and that by not giving evidence he had deprived himself of the central defence to his case namely that he had a claim of right.  He had also lost the chance to vindicate himself by explaining his honest conduct in helping RNA.  He also complains that the floating charge documents were not produced at the trial although they showed that he had, inter alia, pledged his and the 2^nd appellant’s shares which gave him majority control of Tem Fat Hing Fung, a listed company, which in turn had shares in RNA and another listed company.  In addition, he relies on the fact that no attempt had been made to obtain a statement from GC or call him as a defence witness even though he was a central figure in a case.  He concludes that he did not give evidence because he trusted Mr Wong and relied totally on his legal argument which he was repeatedly assured would succeed.  He does, however, acknowledge that it seemed to him that Mr Wong and the whole defence team were kind and made their best effort to safeguard his interest.  He also refers to the failure of Mr Wong at the end of the prosecution case to make a submission that there was no case to answer.  This would have enabled him, even if the submissions was rejected, to take into account what the judge had said in response to the submission, when he made his final decision as to whether to elect to give evidence or not.

21.  In his affidavit in reply, Mr Wong set out his position summarily.  As to the $111 million “loan” made to RNA, he confirms that he asked for further specific instructions but he did not receive any such instructions.  He therefore requested a second conference which took place.  During that conference, he told the 1^st appellant that he must be able to give satisfactory evidence on which he would definitely be cross-examined as to:

(i) the lack of any documentation of the $111 million loan and the explanation of why it was not entered in the company’s account or elsewhere;

(ii) whether he thought the scheme was illegal and, if so, why he did not put a stop to it;

(iii) why he was willing to be involved with the illegal scheme; and

(iv) whether GC could be called as a witness. 

22.  He said the 1^st appellant did not respond to his queries but instead asked whether he could proceed without giving evidence.  He advised that as to the $111 million loan, it would only be possible to proceed “by the ‘negative’ method”, that involved eliminating other possibilities than a loan for $111 million credit so that the only remaining alternative was a loan.  This was agreed to by the 1^st appellant.

23.  In relation to the scheme, he advised that the only way forward was to rely upon the evolution of the common law conspiracy, which meant that agreeing to achieve a legal result by illegal means was no longer an offence.  In consequence if the HK$111 million was a loan by the appellants, then achieving repayment of it could no longer be illegal.  The 1^st appellant added that he did not trust GC and he was advised that it would be very dangerous to call as a witness someone whom he did not trust.  However, GC should be contacted to see whether he was prepared to be a witness.  It was also explained to the 1^st appellant that if he was going to give evidence, his legal team needed to be fully instructed on all their queries in order to be able to advise him.  Mr Wong said he also explained to the 1^st appellant that if he was going to give evidence, he must give full instructions so he could be advised as to what evidence was and was not necessary.  Mr Wong states that the 1^st appellant gave instructions that he was not going to give evidence.  Later, he gave instructions that he was not going to call GC as a witness.  Before the close of the prosecution’s case, the matter of his giving evidence (his election) and calling witnesses were again explained to the 1^st appellant and he confirmed to Mr Wong that he was not going to give evidence and had no witnesses to call.

24.  Exhibited to Mr Wong’s affidavit, is a letter from Mr Wong’s junior to his solicitor.  This summarizes the documentary evidence that was available and states it was “more than enough” to show to the court that there was in fact a loan from GC to the appellants.  It also states, however, that information was needed as to where the $88 million went.  That the account shows that $111 million went to the company but there was nothing to show how the balance of $23 million came from the appellants.  There is then listed 7 requests for more information.  That additional information was apparently not provided.

25.  Further after the close of the prosecution’s case, the 1^st appellant was advised again and he signed a confirmation which when translated states the fact that he had decided not to go in to the witness box to give evidence, nor to call any defence witnesses.  That he understood clearly that he had the right to give or not to give evidence and he had come to his own decision without being influenced by any other person.

26.  In determining whether or not Mr Wong was negligent, it would have been helpful if more information had been provided by the 1^st appellant and Mr Wong as to precisely what happened at the meetings between them.  However, on the information I have, I have the firm impression that Mr Wong was too optimistic in the advice that he gave as to the prospects of successfully defending the 1^st appellant if he did not give evidence and was wrong as to the effect of the changes to the law of conspiracy.  Mr Alun Jones was closer to the truth when he suggested that unless the 1^st appellant gave evidence in support of his contention that he had a claim of right, he had no prospect of acquittal because he had no defence.  Nonetheless, bearing in mind, the limited material available to him, Mr Wong, made some progress with his cross-examination of PW1 in particular and he may well have thought that to assist his chairman he would be even more accommodating.  PW1 did not however support a suggestion that the 1^st appellant did not know what was going on and that, if he had done so even without the 1^st appellant’s evidence, there would be a defence.  The question does, however, remain whether if Mr Wong had been more pessimistic about the prospects of success, the 1^st appellant might have given evidence.  Understandably, he was certainly reluctant to do so, though it is difficult to say with confidence that more forceful advice could not have persuaded him to change his mind. 

27.  This means it is necessary to consider whether it was negligent of Mr Wong not to give firmer advice as to the advantages of the 1^st appellant giving evidence.  In answering this it is necessary to form a judgment as to how likely it was that the 1^st appellant could improve his position by giving evidence.  Mr Alun Jones contends that it was highly likely since it was only by giving evidence that the 1^st appellant could raise the defence of a claim of right.  But is he right in saying that the 1^st appellant might have such a claim in these circumstances?  To answer this question, it is helpful to start by examining the facts of the conspiracy to which I will now turn.  On PW1’s evidence, the 1^st appellant was deeply involved.  The 1^st appellant’s case is he had very limited knowledge of what was happening since the scheme was not only designed by PW1, it was implemented by PW1 without his knowledge.

The scheme and its purpose

28.  This scheme was well supported by documents which were agreed or admitted.  It was explored in the evidence of PW1 at the trial:

(1) it involved a total amount of $100 million;

(2) the incorporation of 5 shell jewellery companies (King’s Jewellery; Claudia Jewellery; Man Fok Jewellery; Concord Jewellery; and Sunny Bright Jewellery);

(3) the use of 3 financial companies, all owned or controlled by the 1^st appellant and one or more of the other defendants (Asset Capital Finance; Dong Fa Finance and Kingbon Finance) and 3 secretarial companies (Jentax, Paton and Melbourne);

(4) RNA, and its subsidiaries, Giant Dragon and Hing Fung;

(5) 20 circular movements of funds (in the form of 109 cheques) through accounts with the same bank (HSBC), each circular movement occurring on the same day;

(6) the execution of a shareholders loan agreement after these circular movements;

(7) the subsequent payment of $55 million cash by RNA to the 1^st appellant; and

(8) the issue of 450 million ordinary shares of RNA worth $45 million by RNA to the 1^st and 2^nd appellants or a third party at their instructions.

29.  The purpose of this scheme was to create the impression of a loan by the 1^st and 2^nd appellants to RNA of $100 million in February 2001 and the subsequent repayment of the loan by way of cash payment of $55 million and the issue of $45 million worth of shares to the 1^st and 2^nd appellants.  In fact there was no loan provided by the 1^st and 2^nd appellants to RNA and as a result of the scheme, the 1^st and 2^nd appellants were enriched by $100 million at the expense of RNA and its creditors.

Details of the scheme

30.  In October 2000, the 1^st appellant recruited PW2.  As instructed by the 1^st appellant, PW2 incorporated the 3 financial companies and 3 secretarial companies in December 2000 and January 2001.  He also set up the 5 jewellery companies on 10 January 2001 and opened bank accounts for each of them with HSBC on 15 January 2001.  The shareholders of the 5 jewellery companies were D4, 4 other persons who had no other involvement in this scheme and 2 of the financial companies controlled by the 1^st appellant.

31.  In December 2000 and January 2001, the 1^st appellant on behalf of Giant Dragon (a wholly subsidiary of RNA) granted to each of the 5 jewellery companies loan facilities not exceeding $25 million each.  Each of these 5 jewellery companies then indicated its draw down of $20 million from the loan facilities, making a total of $100 million.

32.  Between 3 February and 8 February 2001, there were payments on 20 occasions from the 1^st appellant’s bank account or the bank account of Hing Fung (another of RNA’s subsidiary) with HSBC to RNA’s bank account with the same bank, totalling $100 million; the payments were in the following amounts:

(i) $6 million on 5 occasions;

(ii) $5 million on 10 occasions; and

(iii) $4 million on 5 occasions.  

The 1^st appellant was the sole signatory of his own account and D3 was a signatory of cheques issued by Hing Fung.  The 1^st appellant’s secretary (D5) effected these payments.

33.  During this period, immediately after each payment into RNA’s account, RNA made a corresponding payment of the same amount (by way of cash cheque) into the account of one of the 5 jewellery companies with the same bank.  There were 20 such payments with a total amount of $100 million.  The cheques were signed by the 1^st appellant, PW1, a Mr Ho (RNA’s financial manager) or D3 all on behalf of RNA; of these 20 payments, the 1^st appellant signed 15 of them.  Each of the 5 jewellery companies was paid a total of $20 million (which was the amount of the draw down on the loan facility granted to each company).  

34.  After receipt of each payment, the recipient company immediately transferred exactly the amount received by it into the 1^st appellant’s account with HSBC through a financial or secretarial company which was effectively controlled by the 1^st appellant through PW2.  D4 was the sole signatory of all bank accounts for these 5 jewellery companies.  There were 20 such payments through these financial or secretarial companies into the 1^st appellant’s account.  The total amount which was ultimately paid back into the 1^st appellant’s account was $100 million.  This completed the 20 circular movements of funds.  Most of these cycles were completed within a matter of minutes or within one hour, but in any event within the course of the same day.

35.  In respect of each circular movement of funds, all payments were made on paper (by cheques) one immediately after the other in the same amount through the same bank.  After each circular movement of funds, there was no net injection of funds into RNA and no net payment of funds by the 1^st appellant.

36.  Apart from these circular transactions, none of the 5 jewellery companies had done any business or had any other material transactions in its bank account.  The debts owed to Giant Dragon by the 5 jewellery companies (pursuant to the loan facilities, each for the amount of $20 million) were assigned by Giant Dragon to Hing Fung by a document dated 28 January 2001.  The 2^nd appellant signed for Giant Dragon and the 1^st appellant signed for Hing Fung.  On 28 February 2001, the 1^st appellant, signing on behalf of Hing Fung, assigned these debts to the 5 jewellery companies and on 30 April 2001, he further assigned these debts away for a consideration of $1.

37.  On 12 February 2001, a Shareholders Loan Agreement for $100 million was executed by the 1^st and 2^nd appellants as lenders and PW1 and D3 on behalf of RNA as borrower.  There were no board minutes for such borrowing by RNA.

38.  On 18 and 19 April 2001, there were 11 transfers of $5 million each, with a total amount of $55 million, from RNA’s bank account with the International Bank of Asia Limited to the 1^st appellant’s account with the same bank.  There were no board minutes for such transfers (Apparently this was not required since the amount was interest free).

39.  On 20 November 2001, there was an issue by RNA to the 1^st and 2^nd appellants of 450 million ordinary shares at 10 cents each, making a total worth of $45 million of shares.  This issue of shares was approved by the board of RNA.  Of these $45 million worth of shares, $7.5 million each was issued to the 1^st and 2^nd appellants respectively and the remainder of $30 million worth of shares were issued at the instructions of the 1^st and 2^nd appellants to the 1^st appellant’s creditors (two companies controlled by GC).

40.  I have pointed out the difficulties in the 1^st appellant’s way if he sought to put forward a claim that because of his 1999 loan, he had a claim of right.  However, what would be the position if he had given evidence that he knew nothing about the conspiracy, that everything was left to PW1 who devised the conspiracy.  Having regard to the way in which the conspiracy was carried out as just described, the 1^st appellant had to sign document after document.  His personal bank account was being used.  I find it impossible to accept that the 1^st appellant did not know the general nature of what was being done.  On PW1’s evidence, the 1^st appellant was well aware of what was happening.  The 1^st appellant in his affirmation states (para.6) “the mechanics of the payment into RNA was arranged by Andie Lo (PW1) and by 2006, I no longer recalled clearly how he had done this”.  His own way of expressing the position suggests that he had known but then had forgotten.  In his statement exhibited to his affirmation, the 1^st appellant suggests that it was the approach of PW1 indicating that the company required another short term loan of $30 million that was the trigger for the transactions which gave rise to the charge.  The 1^st appellant accepts that he negotiated with GC about the further funds.  The 1^st appellant also knew that if the $30 million was to be provided by GC, this would mean that GC would require repayment of the loan secured by the charges.  This is what happened which had the beneficial effect for the appellants that they were released from both the charges and the guarantee.  The result of the whole transaction being that, instead of RNA’s assets being increased, RNA had had to pay $55 million to GC and shares to the value of $45 million.  Though it did receive the $30 million.

41.  When the details of the conspiracy are examined, it is my view that it is impossible to accept that the 1^st appellant did not appreciate at least sufficient of the details of the scheme to know it was thoroughly dishonest.  It is also impossible to believe he could have thought he had a claim of right as he now contends.  He and his brother and GC were the only persons who benefited significantly from the scheme which involved a massive sum of money.

 (a)    The position of the 1^st appellant

42.  I am confident that if he had given evidence, his position would have been worse rather than better.  The 1^st appellant would be seen to be party to the scheme and on the facts he could not have an honest claim of right.  Mr Alun Jones contended that we must not speculate as to this.  Here he relies on the case of R v. Ho Ling and Another [1996] 1 HKC 733.  This case admittedly had similarities to this case but there was no question of a possible claim of right being raised and as Yang CJ said in the passage relied on at p.736H, the appellants had “at least a slim chance of obtaining an acquittal” so the Court of Appeal was doing exactly what this Court has done which is to come to its conclusion as to the possibility of the appellants’ evidence being believed if they gave evidence.  If their evidence would not be believed because of the facts, it is hard to see how they could claim to have been treated unfairly as a consequence of their counsel not encouraging them to give evidence.

43.  What the 1^st appellant has to show if he was aware and otherwise guilty of the conspiracy was that he does not bear responsibility for seeking and obtaining a repayment of an entirely fictitious loan.  The position might be different if what he had done was to obtain repayment of the first loan.  Then he could say, if it was true, that he believed he was entitled to repayment of the first loan.  That is not the position here.  If he was otherwise guilty of conspiracy in respect of the second loan, it is inevitable that he knew he was not entitled to repayment of the fictitious loan and he would be aware that it was dishonest to obtain money under the fictitious loan.

44.  The starting point in considering a possible excuse based on a claim of right is the need for the prosecution to establish dishonesty in relation to the transaction charged.  It is the defendant’s belief as to the honesty in relation to that conduct which is what matters.  If he can establish that he honestly believed that he was entitled to do what he did in respect of the conduct charged, he might have a defence.  That is not the situation here.  Mr Alun Jones rightly contends that to establish a claim of right, it is a defendant’s views that are important.  This is particularly the case where a case is being tried before a jury and not by a judge alone as happened here.  If a defendant is entitled to jury trial, you cannot fairly deprive him of that right.  This is subject to the qualification that the defendant’s contention that he has a claim of right must have some validity.  In this case, it had no validity. 

45.  In support of his contentions, Mr Alun Jones referred to a number of authorities, to which it is necessary to make a brief reference.  The first is the decision of the Court of Appeal in England of R v. Ghosh [1982] QB 1053.  He prefaced his remarks in the appellants’ amended Case by saying it is obviously legitimate to enquire into the honesty of a covert transaction which prefers one creditor to others and to expect an explanation.  The defence which the 1^st appellant sought to advance raised implicitly the question whether the conduct of the appellants was honest by ordinary public standards, and if not, whether the appellants knew this.

46.  This submission of Mr Alun Jones is clearly based upon the classic statement of Lord Lane CJ in the R v. Ghosh at p.1064, which is in these terms:  

“In determining whether the prosecution has proved that the defendant was acting dishonestly, a jury must first of all decide whether according to the ordinary standards of reasonable and honest people what was done was dishonest.  If it was not dishonest by those standards, that is the end of the matter and the prosecution fails.

If it was dishonest by those standards, then the jury must consider whether the defendant himself must have realised that what he was doing was by those standards dishonest.  In most cases, where the actions are obviously dishonest by ordinary standards, there will be no doubt about it.  It will be obvious that the defendant himself knew that he was acting dishonestly.  It is dishonest for a defendant to act in a way which he knows ordinary people consider to be dishonest, even if he asserts or genuinely believes that he is morally justified in acting as he did.  For example, Robin Hood or those ardent anti-vivisectionists who remove animals from vivisection laboratories are acting dishonestly, even though they may consider themselves to be morally justified in doing what they do, because they know that ordinary people would consider these actions to be dishonest.”

47.  In this case, no reasonable jury let alone a judge could find that the 1^st appellant could possibly comply with that two-stage test of Lord Lane CJ.  The one matter which was beyond question was that whether the 1^st appellant gave evidence or not, he could not directly or indirectly establish he had made a genuine loan to RNA as part of the conspiracy set out in the charge.  He had not provided the money for such a loan nor had anyone else.  It was merely the product of the circular transactions the object of which was to create a fictional indebtedness.  The appellants must have appreciated that there could be no honest justification for their receiving any payment as a result of the circular dishonest transactions.

48.  The next case, which it is necessary to make reference, is the case in the High Court of Australia of Peters and R (1998) 192 CLR 493.  I must confess I find it a difficult case from which to extract the ratio.  Toohey and Gaudron JJ expressed one view.  McHugh and Gummow JJ expressed a different view and Kirby J expressed a third view as to the legal situation.  Then to enable the court to “provide clear instruction to those who have the responsibility of conducting criminal trials, while preferring my own opinions”.  Kirby J withdrew what he had previously said and concurred in the opinions expressed by Toohey and Gaudron JJ on the points of difference.  However, whatever view is adopted as to the result in Peters, what can be said with confidence, is that if a defendant is charged with dishonesty and can show that he may have genuinely believed that what he was doing or intended to do was honest, then he will be not guilty.  However, that is not the case here in respect of the fictitious loan that is the subject matter of the conspiracy charge.  No rational person could believe that he is entitled to benefit significantly from financial transactions which he must have been aware were a sham. 

49.  In any event, the courts in Hong Kong apply or adopt the approach of Lord Lane CJ in Ghosh.  This was made clear by this Court in the judgment of Sir Anthony Mason NPJ at paras 49 and 52 at p.407 in HKSAR v. Mo Yuk Ping (2007) 10 HKCFAR at p.386.

The entry in the RNA bank account of a cheque in the sum of HK$111 million

50.  It is not clear on the information available that the $111 million represented a loan by the appellants as is now contended on their behalf.  If it was a loan, then this fact was certainly concealed.  It did not appear in the accounts and so those accounts were misleading as to the assets of RNA if that company was required to repay the sum.  The reason why, if the sum was a loan, this should be concealed, has not been disclosed by the appellants.  It is a matter the 1^st appellant would be expected to explain if he gave evidence.  He has not done so as yet.  After all, $111 million is far from being an insignificant sum of money.  In the absence of any explanation from the appellants, this Court is entitled to say that if the appellants are complaining that they were treated unfairly, they should have given much more information about their motives for engineering the payment than they have.  Without additional information, there is bound to be reservations as to whether it was a bona fide loan.  The only information that the court has about the payment is that it was made by a company which is not directly connected with the appellants but had a bank account at the same bank as RNA.  Certainly, the trial judge was absolutely right when he said:

“… The operation of this scheme took $100 million of the company’s assets out of it with a cavalier and dishonest regard for the interests of other creditors and shareholders...”

In the circumstances was Mr Wong negligent?

51.  As already pointed out, Mr Alun Jones presented this appeal on the basis that the case against the 1^st appellant was so strong that without giving evidence, he would inevitably be found guilty.  The trial judge’s judgment confirms this assessment which I accept.  However, this does not mean that Mr Wong gave him the wrong advice.  If the 1^st appellant’s oral evidence would not improve his position and he would be subject to hostile cross-examination, then why should Mr Wong encourage him to give evidence?  On what the 1^st appellant inevitably knew about the circular transactions from which only he, his brother and GC would benefit, there was nothing he could say which would mean that he had a prospect of being acquitted.  Even if there was any truth in his alleged involvement in the “loan of $111 million”, could that justify his being party to a fresh conspiracy to extract money from RNA?  In Sankar v. The State of Trinidad and Tobago [1995] 1 WLR 194, the Privy Council endorsed the views of Rougier J in R v. Clinton [1993] 1 WLR 1181 that it was only in “wholly exceptional circumstances that the conduct of counsel could form the basis for an appeal”.  Here Mr Wong had inadequate instructions.  He had attempted to obtain more information from the 1^st appellant but failed.  He did not apparently consider the effect of a claim of right on the 1^st appellant’s position, but, here in the circumstances, that the 1^st appellant might have such a claim was not obvious but fanciful, having regard to the nature of the conspiracy.  Mr Wong’s client did not want to give evidence and did not suggest to Mr Wong on the information we have that he believed he was entitled to engage in the conspiracy.  In addition, the complaint here is not that the 1^st appellant was not given a choice as to whether to give evidence but that there was a failure of Mr Wong to advise him positively to give evidence.  Mr Wong was not under the duty to advise the 1^st appellant whether he should or should not give evidence.  That was for the 1^st appellant to decide not counsel.  Mr Wong’s responsibility was to point out the advantages and disadvantages of giving evidence and then to leave the 1^st appellant to make his own decision.  Mr Wong was in a difficult situation when performing his proper role.  Not having been provided with answers to many pertinent questions, in a case where Mr Wong expected his client to be subject to vigorous cross-examination, what should be the decision was very much a matter of opinion in which counsel could differ.  Mr Wong could have perfectly properly feared on the basis of his inadequate instructions that the results of that cross-examination would be adverse to his client.  In these circumstances, it has not been established that Mr Wong gave inadequate advice that could be categorized as negligent.  He was wrong about the changes to the law of conspiracy but the error by itself does not amount to negligence and it did not effect the outcome.  

52.  We have been provided with copies of the transcript of part of the evidence which was given on behalf of the prosecution.  A study of that transcript shows that although Mr Wong had limited success with his cross-examination of the prosecution witnesses, his cross-examination was at least adequate in the circumstances. 

53.  It is suggested that Mr Wong was negligent because he failed to adduce in evidence the floating charges and personal guarantee documents.  Mr Wong has not explained this decision but in view of what is now known about the case as a whole those documents would not have assisted the 1^st appellant.  If introduced in evidence, they would underline the benefit which the 1^st appellant received as a result of the conspiracy.  In relation to the allegation that he should have taken a statement from GC or called him as a witness, the position was that the task of finding out whether GC was prepared to give evidence and if so what he could say was left with the 1^st appellant himself.  In any event, as was agreed by Mr Wong and the 1^st appellant, it was unlikely that he would or could help.  Again, no blame attaches to Mr Wong.  The worst that can be said about Mr Wong was that he was overly optimistic about what could be achieved if the 1^st appellant contested the case without giving evidence.

The appeal of the 2^nd appellant

54.  The primary argument on behalf of the 2^nd appellant is that if the 1^st appellant’s appeal were to be allowed because of the dominant role of Mr Wong, his appeal should also be allowed.  However, he was separately represented by senior counsel and a junior against whom no complaints are made.  Although it was understandable that he should take the same decision as his brother with regard to giving evidence, the case against him was different from that of the 1^st appellant and he was required to make his own decision as to whether he should give evidence or not.  The two appellants were presumably separately represented because it was thought that their interests were not identical and therefore separate representation was needed.  Having been separately represented, in a way which does not give rise to any complaint, the 2^nd appellant had no justifiable complaint. 

55.  The suggestion by Mr Alun Jones that Mr Wong was negligent in not making a submission of no case to answer for tactical reasons was regrettable.  Mr Wong would have been acting irresponsibly if he had made such a submission because, as Mr Alun Jones himself contends at the close of the prosecution’s case, his client had no defence unless his client gave evidence supporting a claim of right.

56.  An additional point is raised on his behalf, that there was a misunderstanding as to part of the case against the 2^nd appellant by the Court of Appeal.  This is a very minor matter which could not have any bearing on the outcome of the appeal and so accordingly it is not worthy of the separate consideration by this Court. 

57.  Accordingly for the reasons I have given, I would dismiss both appeals.

Mr Justice Bokhary PJ :

58.  The Court unanimously dismisses both appeals.